|07 November, 2019

Al Rajhi Bank embracing the new dawn in Saudi Arabia

Steve Bertamini, CEO of Al Rajhi Bank, sits down with Banker Middle East, to share his views on the performance of the largest Shari’ah-compliant lender

 Al Rajhi Bank Head office - the world's largest Islamic bank by capital - The first branch of the bank was opened for men in Al-Deera district in Riyadh.

Al Rajhi Bank Head office - the world's largest Islamic bank by capital - The first branch of the bank was opened for men in Al-Deera district in Riyadh.

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What keeps you up at night?

It’s all about managing change—thinking about the current situation and how things are moving very quickly, sometimes it’s difficult to determine if the path you have chosen or the technology you have adopted is the correct one. In this regard, we are moving to an open architecture view. For instance, we now have 80 per cent of our applications API-enabled which makes it easier for us to not only work with other partners such fintech players but also to deploy new digital capabilities much faster.

Open architecture is the way to go in this fast-evolving world, which I think its important especially in retail banking. This is because customers today expect banks to act and have an experience like that they are used to, when using Amazon, Google and Apple. If you do not provide them with such an experience they will switch to other providers.

Al Rajhi posted a 16 per cent increase in profit in the first half of 2019, an increase compared to the same period in 2018. What was this profit attributed to and how do you expect to finish the year?

First of all, one of the main drivers of Al Rajhi’s growth during the first half of the year was an increase in customers purchasing homes, as the largest financier of mortgages in the country the bank recorded a 39 per cent year-on-year growth in the first half (H1) of 2019 compared to H1 2018. Since there is an excess in demand compared to supply, as more supply comes online, we expect to continue to see this growth for the next two to three years.

We also saw very strong growth in current accounts as well as faster growth in corporate lending.

As the largest Islamic lender in the world, what are your expansion plans both domestically and in international markets?

We are very much focused on domestic growth. We believe that there is still a lot of potential for growth in Saudi Arabia, on the back of the Kingdom’s Vision 2030, a transformation plan announced in 2016. We are currently beginning to see a pickup in activity especially in the last few months where large projects are being awarded, with more upcoming opportunities.

What is Al Rajhi Bank doing to align itself with Vision 2030?

There are very few sectors that we are focused on and one of them is housing. As you know, one of Vision 2030’s objective is to have 70 per cent of the population owning homes in the country. Since then, we have seen a strong growth—we saw this number exceed 50 per cent in 2018.

Similarly, there is also a big interest in developing the SME sector—a sector which is very important in generating employment in the country—as well as some major projects that were announced in the country including new industries being established such as tourism and entertainment. These sectors provide a good opportunity for the bank to participate in Vision 2030.

When you mentioned new industries, is this what the bank wants to tap into in terms of financing?

Absolutely! Tourism and entertainment are the main areas where there are a lot of employees as well as a lot of customers. Having the largest retail franchise in Saudi Arabia, this will play to the bank’s strength as Al Rajhi is able to provide a broader range of solutions to the client, their employees as well as customers.

Other areas of increasing activity and interest are in renewables, education and healthcare.

A number of mergers are currently underway Saudi Arabia as well as across the region. Does Al Rajhi have any acquisition plans?

The bank currently has no plans to acquire. There is a strong organic growth opportunity for the bank but it’s not unusual to see mergers occur in these markets. A lot of internal activity is required, particularly when you have large mergers. For example, in the first 18 to 24 months of a merger, a lot of time is spent internally rationalising the branch infrastructure aligning procedures, systems and policies. For Al Rajhi, in the short term there are none of these distractions, but there is still opportunity in the market and over time we will see how things play out.

Do you see this trend picking up pace for the next year or so?

There has been one merger completed and another one announced, I do not expect a lot of merger activity in Saudi Arabia in the near term. But as you know, there has been a lot of M&A activity across the Gulf, and I expect that to continue. This is primarily driven by the fact that banking is a scale business and the larger scale you have the easier it is for the bank to compete. While I expect the trend to continue in the region, there is also a need for time to digest the recently announced acquisition in the Kingdom.

Al Rahji launched the Al Mubasher app for its retail customers what is the next step from here?

The app has been extremely successful. Al Mubasher is the most downloaded application and highest rated application in Saudi Arabia. Over the last 12 months the bank has been adding over a hundred thousand digitally active customers a month. Al Rajhi also recently enabled customers to be able to open current accounts online and we are seeing a year-on-year increase on new customers which are also of a younger age. Therefore, while digitalisation does replace regular openings, it also brings in new customers to the bank.

Additionally, the bank also enabled the application to give customers the ability to apply for consumer financing and complete the transaction within the application itself. We plan to expand this functionality to the other products as well.

What differentiates Al Mubasher from what is currently being offered on the Saudi market?

The main competitive advantage that any digital player has is customer experience. The bank invests in ensuring that it has the best customer experience by both designing internally, as well as by learning and leveraging from best practices across the world.

We also recently launched an innovation lab that is utilizing the latest tools, including eye-tracking technology, with various focus groups to ensure that whenever Al Rajhi launches something, it will be successful. The bank will continue taking feedback to further enhance the application from time to time in terms of both features and usability.

How do you view digitalisation?

Digitalisation has three distinctive phases. Phase one is when you digitalise your transactions—so the bank makes it easy for customers to do the transactions they would normally do in a branch such as transferring money, checking balances and making bill payments.

The second phase is the digitalisation of products—at this stage the bank is digitalising products so that customers do not need to walk into the bank to get those products.

The third and final stage which Al Rahji has started working on as well, is called ecosystems. At this stage the bank provides a much broader solution not only for banking products but everything else around what the customer may need, such as purchasing a home. We help customers from selecting a home, to furnishing it, as well as the insurance and after-sale services. So, this is where the future is, and the bank has a clear road map on how to execute phase three.

Talking about ecosystems, are there any plans in the pipeline to launch digital branches?

Effectively, the bank’s app is a digital branch. Over the last two years, all the new branches or upgrades we have done are more digital by nature—they have a larger digital footprint and more automated machines.

We believe there is still a need for customers to visit bank branches physically for advisory services, especially for first- time home buyers, who may want to talk to someone who has product knowledge.

Additionally, as Saudi Arabia is relatively in the early stages of having—for instance, wealth development products and savings products—we think as demand for these products and services begins to increase, we will be able to leverage the branch infrastructures for these types of advisory services.

What sort of technology capabilities is Al Rajhi using?

Al Rajhi was the first bank to conduct a blockchain transaction in the Kingdom with our subsidiary in Jordan as well as a correspondent bank in Kuwait. The bank is now expanding that to Egypt as well as India, and continues to do more transactions using blockchain technology between us and corresponding banks.

The bank has also been active in robotics. Al Rajhi is one of the largest users of robotics in the Middle East, over two years now we have added over 250 bots, conducting around 24,000 transactions per day in 50 different financial and non- financial processes.

Digitalisation allows the bank to have a very high level of service as customers increasingly demand and expect 24/7 ability to conduct their banking needs. We have started thinking of the next phase including using big data, AI and obviously 5G which is going to transform banking in terms of opportunities. Al Rajhi is taking a phased approach because sometimes it’s too early to introduce products and services to the market.

Now we are in the phase of digitising our products to ensure that we have great customer service experience as we have started building ecosystems and digital markets places.

What is your area of focus for Al Rajhi next year?

For the last twelve months, we have been working on our 2025 strategy. As you know we have our ‘ABCDE’ strategy in place since 2016, which has been a success and placed us in good stead.

While the framework works, as we think about 2025 and given the conversation that we just had, things are moving at a faster pace especially in the digital space. So, the bank is weighing options on how it can reposition itself for 2025. We are going to take this to the board later this year and subsequently we will begin to communicate what we think will be most relevant for 2025. For now, the bank remains on track with our 2020 strategy.

How do you see banking changing for your customers in 2025?

First, the app! I think everything will be handheld and wearable as we are already moving in that direction particularly with the demographics in Saudi Arabia—I expect this trend to accelerate and impact both corporates as well as SMEs.

Additionally, there is a lot of automation that will continue to take place in the back office—robotics, chatbots, AI, etc.— all of which will allow you to process information and have better insights than you do today. Also, the workforce will change. Banks will have few tellers and more data engineers as well as people working on customer experience. Even for Al Rajhi today, the digital team has grown from four to five people a few years ago, to over 100 people. And we think this will continue to change as we digitalise the bank.

Tell us more about Al Rajhi’s CSR initiatives.

CSR is something that Al Rajhi is proud of. We started it in 2016 and we hoped to achieve 50,000 volunteer hours by 2020—which seemed like a huge task when we started— but every year we have effectively doubled the number of volunteer hours. This year alone we have had over a hundred events in 20 different cities, with over a thousand staff contributing over 15 thousand hours already.

The programmes were focused on financial literacy, helping the needy and improving the environment. We really give people the freedom and latitude to always find ways to help and contribute to their communities. Helping others by utilizing teamwork always make people feel better and frankly it is a big driver of employee engagement.

Considering micro- and macro-economic conditions, what kind of risks do you anticipate the business to face next year in Saudi Arabia and globally?

One of the things that changed recently is pressure on rates, which tends to affect the banking industry as a whole. Al Rajhi is quite fortunate because the bank has a very strong current account deposit base. So, in some ways, we are insulated from that and also because our portfolio is largely retail, where most of our retail lending is on a fixed-term base.

Additionally, there are always geopolitical issues and as a company you focus on what you can control by staying focused on executing your strategy as well astaking care of your staff and customers.

Al Rajhi is proud to be the first Saudi Arabian company to issue an ESG Report, which is a new global trend being focused on by foreign investors who are interested in investing in the Kingdom, following the MSCI inclusion. The company seeks to remain active in engaging investors and increasing disclosure, which is positive for the industry. Investors increasingly want transparency, and this is something that as a company, shows we have good policies in place, that we are concerned about the environment and we are trying to do the right thing from our social perspective. Transparency makes people more comfortable to invest in the bank which is one of our goals as more foreign investors increase their presence in the Kingdom.

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